FCU Bylaws 2019 update: Expulsion, limitation of service and unlawful purposes

Last week the NCUA Board finalized a handful of rules, including an update to the FCU Bylaws housed in Appendix A to Part 701. Several substantive changes were made in the Final Rule, which we will cover in a couple blogs, beginning with the discussion and changes surrounding expulsion, limitation of services and unlawful purposes.

Article XVI: Expulsion

Whenever an update to the bylaws is proposed, it generates conversation around member expulsion. In the 2019 final rule, NCUA stated that, unsurprisingly, many commenters focused on the proposed provisions governing limitation of services and expulsion of members. The Federal Credit Union Act only allows a member to be expelled in two ways: (1) by a two-thirds vote of the membership present at a special meeting called for that purpose or (2) by virtue of the member’s non-participation in the affairs of the federal credit union (FCU). Calling a special meeting for the purposes of expulsion costs money and staff time, and can be a significant operational lift. This creates some very difficult situations for credit unions where the barrier to removing dangerous or abusive members is quite high. NCUA has consistently recognized that FCUs report this issue, but stated that its hands are tied by the language of the Federal Credit Union Act.

In the final rule, Article XIV, which specifies the expulsion procedures, was rewritten, but not changed substantively. New commentary to the article specifies that only in-person voting is permitted at the special meeting. The commentary also directs the reader to Article II regarding the limitation of services as alternative measures for responding to abusive or disruptive members and Article XVI regarding the use of accounts for unlawful purposes.

 

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